Defending Terra pegs without facilitating cross-Terra swaps is not a good option in my opinion – the ability to swap between Terras is a key value proposition. I think that the tension here can be summarized as follows: we want to facilitate low-friction cross-currency transfers, while at the same time minimizing exposure to system-exogenous volatility. This is a significant open problem that deserves separate discussion – let’s move it here.
Recalling your original point:
Are you referring to decentralized derivatives ala dydx here? It certainly is possible – in theory – to buy or sell whatever risk you want decentralized-ly. That assumes you’ll find the necessary liquidity – biggest problem with DeFi at the moment. More pertinently though, I don’t think this solves our use case, which is for the Vietnamese worker in Korea to cheaply convert TerraKRW to TerraVND and send back to her family. A decentralized KRW/VND futures contract surely ain’t gonna help her much, right?
Yes – primary objective is a sound multi-currency Terra design. “Mothership currency” is nothing more than a narrative actually – the protocol does not favor SDT over the rest in any meaningful way right now. The suggestion to use SDT when defining the liquidity pool is largely arbitrary as I pointed out – it’s just the denomination for “global terra market cap”. A multi-currency design creates currency competition, so at the end of the day the SDT vs UST verdict is up to the market.
Libra volatility is not fully hedged. First off, Libra didn’t give us a benchmark – volatility against what? Sounds like a currency basket but not clear. I think that Libra is pretty much a tokenized MMF without the interest, hoping that it can function as a loose currency peg. Go back to 2008 to recall why MMFs do not work well as currency pegs – the Reserve Fund broke the buck when the “low volatility” Lehman paper it was holding went bust in a day. Were it not for the Fed, investors would have suffered serious losses. The point is that Libra’s “low volatility” assets cannot guarantee 100% redemption against their peg unless the Fed is ready to step in. To be fair, this is no less a risk with Terra insofar as we hold less than 100% cash reserves. The stability mechanism + fiat reserve have been designed to minimize this risk.
As designed, in absence of an actual Luna/SDR market the rate is determined by say Luna/KRW and KRW/SDR. This is not ideal. Can you explain where you think redemptions break though? If there are liquid markets for both Luna/KRW and KRW/SDR, where does the following redemption process break: SDT --> Luna --> KRW --> SDR. I can see more fees and slightly higher volatility as risks.
Robust voter incentives in decentralized oracles is, in all honesty, very much an open problem. Marco from our team is doing some mechanism design research where the goal is a mechanism whose dominant strategy is truthful voting. The VCG mechanism is an excellent result from auction theory with that property.
Addressing your specific concern about devalued voting: I think that a constant-product mechanism similar to the one I proposed applied to cross-Terra swaps can alleviate this. The objective is to make speculation expensive and our system strictly inferior to traditional forex platforms for non-trivial trade sizes.